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FTSE tumbles below 6,000 as panic returns to China
The FTSE 100 and global markets dive into the red after heavy losses on China's stock market prompt halt in trading for second time in week.
Update: The FTSE 100 has tumbled 2% amid fears over China, after trading on the country’s stock market was suspended for the second time this week following a heavy sell-off.
Trading on China’s CSI 300 index fell 5% in the first 12 minutes of trading, triggering a 15-minute trading halt. After resuming, it took only two minutes before losses reached 7%, prompting a shutdown of the market for the rest of the day under its 'circuit breaker' mechanism.
It is the second time this week trading has been suspended, after a glut of weak data sparked further fears over slowing economic growth in the world’s fastest growing economy. Even reports the country will extend a ban on share sales by large investors has failed to calm markets.
The Chinese central bank’s perpetual weakening of the country’s currency has added to investors’ fears. The People’s Bank of China let the yuan slip further overnight, sparking a sell-off in emerging market currencies.
China’s stock market slump sparked panic across global markets, with commodities worst hit given China’s position as the world’s top metals consumer. The FTSE 100 closed 119 points lower at 5,954, tumbling below the 6,000 mark, with almost every stock in the index falling into the red.
However, that was up on a session low of 5,891, as news that China was to suspend its 'circuit breaker' mechanism prompted a paring of losses. 'The positive initial reaction in developed markets would suggest the circuit breaker suspension in China could act to calm Chinese markets rather than just spur even bigger daily price declines,' said Jasper Lawler, market analyst at CMC Markets UK.
In the eurozone, the German DAX 30 fell 2.3%, the French CAC 40 was down 1.7%, Spain’s Ibex fell 1.2% and Italy’s FTSE MIB dropped 1.2%.
Oil, which fell below $35 a barrel yesterday for the first time in over a decade, fell even further in the morning's trading before recovering to trade at $34.39 a barrel, marginally up on the day.
‘Global equity markets are now battling the third wave of deflation since 2008,’ said Dominic Rossi, global chief investment officer at fund group Fidelity.
‘The epicentre is not within the developed world nor the financial system but, this time, within the developing world and the global manufacturing sector, where capital allocation has been poor and where overcapacity is rife.’
Rossi said the lower yuan would ‘further deflate the demand for commodities and traded goods generally’, meaning ‘a further downside adjustment to potential world output is now unavoidable’.
Miners and oil stocks tumbled to the bottom of the FTSE 100, while companies with heavy emerging markets exposure were also hit.
Oil stocks were also in the red, but clawed back some of the day's losses as the crude price showed some signs of stability. BG (BG) closed 2.5% lower at 931.4p, BP (BP) fell 1.7% to 337.7p and Shell (RDSb) dropped 3.4% to £14.53.
Only three FTSE 100 stocks avoided losses. Randgold Resources (RRS) rose 1.7% to £44.03 as investors fled to the safe haven of gold amid the volatility, while Marks & Spencer (MKS) was broadly flat as chief executive Marc Bolland announced he would step down following a weak Christmas. General merchandise sales at the retailer fell 5.8% over the third quarter, although the company nudged up margin guidance. Rival Next (NXT) was the other riser, up 1.1% at £69.40.
Poundland (PLND) fell 11.9% to 169p as the discount retailer warned profits would come in below forecasts after a poor Christmas season.
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by Gavin Lumsden on Sep 30, 2016 at 17:23